Eurostocks edge firmer, led by autos, insurers

Shares in car makers and insurance firms led European shares firmer in volatile trade yesterday as investors cast off dire US unemployment data and Wall Street headed higher.

British telecoms group Cable & Wireless was Europe's top gainer after it appointed a new chairman, while French telecoms equipment maker Alcatel surged on hopes a strategy meeting next week will yield positive news.

The FTSE Eurotop 300 index of pan-European blue chips was up 0.1 per cent at 878 points by 1635 GMT, while the narrower DJ Euro Stoxx 50 index was flat at 2,490 points.

The levels marked a recovery from steep losses earlier in the afternoon in the wake of bleak US unemployment data, which showed the already troubled US job market lost 101,000 jobs in December.

Geopolitical concerns were also brought back to the fore by North Korea's announcement that it had withdrawn from the global treaty to prevent the spread of atomic weapons, raising the stakes in the crisis over its nuclear intentions.

Iraq was not far from investors' minds either, as European officials urged the United States not to rush into a war against Iraq without conclusive proof that the country has weapons of mass destruction.

"We feel an attack on Iraq is the most likely scenario and it's more a question of when rather than if, but then the US is in a bit of a diplomatic trap at the moment," said Roland Lescure, head of strategy and research at CDC IXIS Asset Management in Paris.

"That means we may have to live with the uncertainty for a little while longer," Lescure said.

Auto stocks such as DaimlerChrysler and BMW took a shine to German economic data showing industrial orders in Europe's largest economy rose 1.7 per cent in November, largely due to a sharp rise in exports.

German car manufacturers are among the country's leading exporters. DaimlerChrysler rose 1.4 per cent, Volkswagen added 2.6 per cent and BMW added 2.8 per cent.

The insurance sector was also strong, with Swiss Re adding 3.3 per cent after Morgan Stanley raised its price target on the stock and retained its overweight stance.

Morgan Stanley said European reinsurers looked attractive relative to the sector and raised its stance on Germany's Munich Re and Swiss rival Converium to "overweight" from "equalweight". Their stock rose 1.1 per cent and 0.9 per cent respectively.

Elsewhere, Safeway rose 9.3 per cent after sources said Britain's second-largest food retailer J. Sainsbury was considering a counterbid for the company, possibly with Wal-Mart's ASDA or a financial investor.

The move was prompted by Thursday's £2.5 billion agreed all-paper bid for Safeway by fast-growing rival William Morrison Supermarkets. Sainsbury was off one per cent.

But Carrefour, the world's second-largest supermarket group, was among Europe's biggest blue-chip decliners, falling 4.7 per cent after it posted disappointing full-year sales that sparked a string of broker downgrades.

Merrill Lynch cut its recommendation to "neutral" from "buy", market sources said. They tied the downgrade to weak sales growth in the French hypermarket business, the threat of increased competition and a relatively high rating.

Wall Street was trading mixed after recovering its composure in the wake of the bleak unemployment figures, which were well below market expectations.

The Dow Jones industrial average eased 0.2 per cent by 1630 GMT as the tech-laced Nasdaq Composite added 0.5 per cent.

Economists said the data had taken the gloss off the stock market's rally so far this year as they raised doubts about the strength of the US economic recovery.

"The fact that we've got some seriously weak payroll numbers throws up some hurdles to more positive stock market sentiment and I think it will take a while to recover," said Bear Stearns economist David Brown.

"These figures have turned the whole paradigm of expectations going into the year upside down. Stocks started off the new year with a lot of goodwill and offering a lot of promise on the back of stronger recovery expectations," he said.